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Valuing Property

With few exceptions, Tax Code Section 23.01 requires taxable property to be appraised at market value as of Jan. 1. Market value is the price at which a property would transfer for cash or its equivalent under prevailing market conditions if:

it is exposed for sale in the open market with a reasonable time for the seller to find a purchaser;

both the seller and the purchaser know of all the uses and purposes to which the property is adapted and for which it is capable of being used and of the enforceable restrictions on its use; and

both the seller and purchaser seek to maximize their gains and neither is in a position to take advantage of the exigencies of the other.

Each county appraisal district determines the value of all taxable property within the county boundaries. Tax Code Section 25.18 requires appraisal districts to reappraise all property in its jurisdiction at least once every three years. Tax Code Section 23.01 requires that appraisal districts comply with the Uniform Standards of Professional Appraisal Practice if mass appraisal is used and that the same appraisal methods and techniques be used in appraising the same or similar kinds of property. Individual characteristics that affect the property's market value must be evaluated in determining the property's market value.

Before appraisals begin, the appraisal district compiles a list of taxable property. The list contains a description and the name and address of the owner for each property. In a mass appraisal, the appraisal district then classifies properties according to a variety of factors, such as size, use and construction type. Using data from recent property sales, the appraisal district appraises the value of typical properties in each class. Taking into account differences such as age or location, the appraisal district uses typical property values to appraise all the properties in each class.

Three common approaches that the appraisal district may use in appraising property are the sales comparison (market) approach, the income approach and the cost approach.

The market approach to value is based on sales prices of similar properties. It compares the property being appraised to similar properties that have recently sold and then adjusts the comparable properties for differences between them and the property being appraised.

The income approach is based on income and expense data and is used to determine the present worth of future benefits. It seeks to determine what an investor would pay now for a future revenue stream anticipated to be received from the property.

The cost approach is based on what it would it cost to replace the building (improvement) with one of equal utility. Depreciation is applied and the estimate is added to the land value.

A Notice of Appraised Value informs the property owner if the appraisal district intends to increase the value of a property. Chief appraisers send two kinds of notices of appraised value.

A detailed notice contains the description of the property; taxing units allowed to tax the property; preceding year's appraised value; preceding year's taxable value; current year's appraised value; last year and current year exemptions; estimate of taxes based on previous year's tax rates if the appraised value is greater in the current year; statutory language; explanation of how to protest; ARB hearing information; and an explanation that the appraisal district only determines a property's value and does not decide on tax increases. A detailed notice is sent if:

the value of a property is higher than it was in the previous year (The appraisal district's board can decide that it will send detailed notices only if a property's value increases by more than $1,000.);

the value of a property is higher than the value the property owner gave on a rendition (see next section);

the property was not on the appraisal district's records in the previous year; or

an exemption or partial exemption approved for the property for the preceding year was canceled or reduced for the current year.

Tax Code Section 25.19 requires the chief appraiser to send the notice of appraised value by May 1 or April 1 for residence homesteads, or as soon thereafter as possible. If a property owner disagrees with this value, the property owner may file a protest with the appraisal review board (ARB).

The notice of appraised value includes a protest form and information about how and when to file a protest with the ARB if the property owner disagrees with the appraisal district's actions.

The appraised home value for a homeowner who qualifies his or her homestead for exemptions in the preceding and current year may not increase more than 10 percent per year.

Tax Code Section 23.23(a) sets a limit on the amount of annual increase to the appraised value of a residence homestead to not exceed the lesser of:

the market value of the property; or

the sum of:

10 percent of the appraised value of the property for last year;

the appraised value of the property for last year; and

the market value of all new improvements to the property.

Tax Code Section 23.23(e) defines a new improvement as an improvement to a residence homestead made after the most recent appraisal of the property that increases its market value and was not included in the appraised value of the property for the preceding tax year. It does not include repairs to or ordinary maintenance of an existing structure, the grounds or another feature of the property. Tax Code Section 23.23(f) states that a replacement structure for one that was rendered uninhabitable or unusable by a casualty or by wind or water damage is also not considered a new improvement.

The appraisal limitation only applies to a residence homestead. As stated in Tax Code Section 23.23(c), the limitation takes effect Jan. 1 of the tax year following the year in which the homeowner qualifies for the homestead exemption. It expires on Jan. 1 of the tax year following the year in which the property owners no longer qualify for the residence homestead exemption.

A rendition is a form that may be used by a property owner to report taxable property owned on Jan. 1 to the appraisal district. Both real and personal property may be rendered. The rendition identifies, describes and gives the location of the taxable property. Business owners must report a rendition of their personal property. Other property owners may choose to submit a rendition.

Persons filing renditions who are not the property owner, owner's employee or affiliated entity or a secured party must have the rendition notarized.

If the total taxable value of personal property is less than $500 in any one taxing unit, the property is exempt in that taxing unit.

Advantages

A property owner who files a rendition is in a better position to exercise his or her rights as a taxpayer.

The property owner's correct mailing address is established on record so taxing units send tax bills to the right address.

The property owner's opinion of his or her property's value is on record with the appraisal district. The chief appraiser must send a notice of appraised value if he or she places a higher value on the property than the value listed on rendition by the property owner.

Deadlines

Rendition statements and property report deadlines depend on property type or location. The statements and reports must be delivered to the chief appraiser after Jan. 1 and no later than the deadline indicated below. Allowed extensions also vary by property type or location as referenced below.

Rendition Statements and Reports

Deadlines

Allowed Extension(s)

Property located in an appraisal district
in which one or more taxing units exempts Freeport
property under Tax Code Section 11.251

April 1

May 1 upon written request

additional 15 days for good cause shown

Property generally

April 15

May 15 upon written request

additional 15 days for good cause shown

Property regulated by the Public Utility Commission of Texas,
the Railroad Commission of Texas, the federal Surface
Transportation Board or the Federal Energy Regulatory Commission.

April 30

additional 15 days for good cause shown

Property Inspection

Tax Code Section 22.07 authorizes the chief appraiser or a representative to enter the premises of a business, trade or profession to inspect the property to determine the existence and market value of tangible personal property used for the production of income and if it has taxable situs.

Penalties

A penalty of 10 percent of the total amount of taxes imposed the on the property for that year could be incurred for failing to timely file a rendition statement or property report.

A penalty of 50 percent of the total amount of taxes imposed on the property for the tax year of the statement or report could be incurred for filing a false report or statement or for altering, destroying or concealing any record.

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